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The impact of the OECD BEPS tax plan

Are businesses changing their planning approach to tax?

Our latest global survey found that businesses biggest concerns stemming from the Organisation for Economic Co-operation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS) Action Plan are additional administrative burdens and cyber security. With the demand of information that will be required and the sharing expected across local and foreign governments, is this a big surprise? Probably not, but our survey surprising found that nearly one year after release 78% of businesses have not changed their planning approach to taxes.

With more than 80 countries now having agreed to adopt at least the Action Plan minimum elements, there’s no getting around BEPS. But our global survey of 2,600 businesses in 36 countries found little impact from the OECD BEPS programme, which was finalised last October. Globally, 78% of businesses say they have not changed their businesses approach to taxation and the lack of impact is even greater in the G7 (83%), with 89% of US businesses and 86% of UK businesses saying that BEPS has had little impact on their tax planning. The Action Plan has had the greatest impact on business tax planning in the countries of Indonesia (35%), Nigeria (38%) and India (36%).

Looking back

Nearly a year ago, I said, “the effectiveness of the project will be determined by its widespread and consistent implementation, but there is bound to be a significant variation in the timing of implementation and interpretation of how the rules are applied.” Today we are seeing partial or modified application in different local markets creating an even more complex patchwork of requirements than before.

Businesses biggest concerns

As part of the BEPS plan, businesses are being asked to provide corporate tax information to local and international authorities and the two greatest concerns with the practice is the additional administrative burden it creates (25%), followed by cyber security concerns (15%). The additional administrative burden was cited by 35% of businesses in UK and by 32% in the US.

What does the future hold?

It is fascinating that after the initial excitement around BEPS, and its potentially game changing elements, so few in the survey have taken active steps to change what they are doing. The reasons for this are likely to be many. A number of companies will be reluctant to be the first mover in this area and may be looking to see what others are doing in their industry or region. Governments haven’t yet explained how or even if they will implement BEPS in some countries, so that leads to business caution. Equally, business leaders prefer the black and white to the grey on tax issues, so businesses would undoubtedly benefit from more guidance on what they should do next. Many will have been bitten by retrospective legislation or rule changes on tax in recent years and will be nervous about action before the ground rules are clear.

We do appear to be seeing swifter movement from those larger corporates who are perhaps more in the public eye and feel the pressure to act now. For those medium sized entities the future still appears to be unclear and therefore they are adopting a wait and see approach.

BEPS is still in the early stages of implementation. And if not already seen by business leaders, it’s already clear that this will be a genuinely global regime, which embraces developed and emerging markets and offers little or no shelters. For the unwary, there are heightened tax risks and exposures. But the ability to anticipate and manage the changes will be a key source of competitive differentiation.